Strategic sourcing analysis: how to get started

The COVID-19 pandemic is placing significant financial strain on public sector organizations. It is critical during this time to consider opportunities to reduce costs. Strategic sourcing is a tool that many governmental entities have yet to implement but could significantly reduce the procurement of goods and services, including time savings for contract administration. 

Strategic sourcing – what is it and how can you utilize it to improve operations of a public sector entity?

Strategic sourcing analysis is a collaborative and organized approach to leveraging suppliers and organizational strategy to yield long-term cost-saving benefits. It is the process by which entities work collaboratively with internal stakeholders and suppliers to align objectives with the purchasing priorities of the organization.

When you follow a strategic sourcing approach, you are essentially looking at the big picture to identify ways you can add more long-term value to the organization at the same or lower cost. This approach is in contrast to the common tactical sourcing approach, which is more reactive in nature and focuses on identifying quick and easy ways to immediately reduce spend.  Instead, with strategic sourcing, the focus is on building sustainable, collaborative relationships with suppliers and other value partners in order to achieve long-term cost saving results. Unfortunately, many governments operate using the tactical approach.

It is important to assess whether the benefits of strategic sourcing are right for your organization. There are various advantages to leveraging this approach, including:

• Better alignment of spending with strategy and organizational objectives
• Sustainable relationships with suppliers built with trust
• Increased long-term savings and streamlined business processes

Listed below are four simple steps to begin the process of implementing strategic sourcing within your organization:

Step 1: Conduct research

Start with researching your organization’s current sourcing methods and identify areas for improvement. Management should assess strategy for the next three to five years to determine the organization’s spending priorities and how they will be affected by the market in the next few years. Part of this step also includes looking internally at the organization’s processes to determine if procurement policies need to be adjusted to effectively implement a new sourcing approach within the organization.